IfW lifts Germany's 2026 growth outlook to 1.3% on brighter signs

Germany's IfW economic institute has revised upwards its growth projection for Europe's largest economy, now expecting gross domestic product to expand by 1.3% in 2026. The updated figure marks an increase of half a percentage point from the previous estimate of 0.8%, reflecting what the institute describes as a noticeable pick-up in economic activity and improving business confidence.

The revision comes amid growing evidence that the German economy has moved past the trough of its recent downturn. However, the institute cautioned that the recovery remains fragile, pointing to risks arising from the ongoing conflict involving Iran and the anticipated fading of fiscal stimulus measures in the years ahead.

Looking further out, the IfW left its 2027 growth forecast unchanged at 1.0%, while projecting a slowdown to just 0.5% growth in 2028. The institute attributed Germany's weak performance in recent years largely to structural factors that are expected to continue weighing on economic activity.

While export growth is anticipated to resume following sharp declines in previous periods, the IfW warned that deteriorating competitiveness is likely to result in further losses of global market share. Given the challenges facing Germany as a business location, private investment activity is expected to remain subdued in the near term.